1. Global growth is slowing massively; witness the 75% crash in the Baltic Dry Freight Index
2. America’s mid-sized banking crises in are only beginning in earnest; expect more deposit runs
3. America’s mild stagflation is looms, thanks to an increasingly nasty credit crunch worsening her Economic Time® and supply side inflation remaining sticky
4. China’s Economic Time® may look all right, but is flimsy.
1. Lost direction. This week’s The Economist ran an acerbic piece on why the IMF has become so off-beam since it trumpeted a post COVID-19 policy response three years ago. In a nutshell, the IMF has lost sight of its original mission: “…to backstop countries in distress and thus, by extension, the world economy.”
2. Three enfeebling factors. According to The Economist, the IMF has lost out because of three enfeebling factors:
a. China’s recalcitrance when it comes to debt restructuring (aka write-downs);
b. “The parlous state of middle income countries in perennial distress…”, and
c. Mission creep. The IMF has lost sight of its original mission – to “…help solve countries’ balance of payments problems, and watch over economic stability.” Instead, other causes have crept in such as promoting gender equality
3. IMF the copycat
a. What the IMF keeps doing
i. Copying received wisdom. A very bright Chinese friend stated that “An economist tells you the time by looking at somebody else’s watch”.
ii. Thinking by committee. I would add that the IMF often errs because of its decision-by-committee process. As we recall, a camel is a horse designed by committee….
4. IMF follies. Where the IMF copycats err. What follows are my views of just how wrong the IMF economic report is..
a. Banking contagion “contained” . Forget it. In yesterday’s Financial Times (FT), pl 6, we read that “Investors are loading up on protection against a fresh round of financial turmoil in US regional bank stocks as lenders prepare to reveal how badly their earnings have been squeezed by the troubles that felled Silicon Valley Bank.”
i. Power of America’s midsized lenders (MSLs) They make about one third of all US loans – including a disproportionally large share of commercial lending.
ii. These MSLs face three issues:
1. Diminished profit outlook’
2. Deposit outflows
3. Tighter regulations
iii. The buffer that was. These MSLs used to have $5.3 trn in core deposits, backing around $4.6 trn in loans and other illiquid investments. This means that these MSLs had $700 bn in surplus cash or assets in case depositors wanted their money back. That buffer has turned into a void: regional and community lenders have $260 bn more in loans and illiquid assets than they do in deposits. Oh oh.
b. Global growth of 2.8% for 2023 and 3.0% for 2024.
i. Global trade: back to the beginning. In April 2020, the Baltic Dry Index stood at 1,560; today its stands at 1,425, or about nine per cent lower than the last low inflection point. What’s more, that Baltic Index has skidded by about 75% from its more recent peak in late September, 2021.
ii. China economy is “supercharged. Really? Then how come Beijing only recently has begun promoting private business – albeit it under state guidance - again? China’s Economic Time® may sound good: an excess supply of money and an excess demand for goods, but that robustness is nascent, as we shall see now.
1. World trade slowing. We just saw this in the Baltic Dry Index, as but one proxy. This means that that China can expect little by way of external stimuli.
2. Domestic demand has wilted. We read of Chinese officials understandably pushing the domestic demand card. If it were so robust, then why the need to push it? According to our South China Morning Post (SCMP) of yesterday, p. A3, “Consumption accounted for 32.8 per cent of China’s gross domestic product growth in 2022, down from 54.5 per cent in 2021 and still well short of over 80 per cent for many developed countries.” This means that China can expect little overall macro boost from a sector accounting for only about a third of growth.
3. Monetary policy flimsy. Seems like President Xi is cracking down big time on corruption in the banking sector, suggesting that a leash will be put on lenders. This means that we cannot expect much boost from wild lending.
4. Fiscal policy looking threadbare. We all know about the parlous state of especially local finance. Besides, how many roads and bridges can you build with any notable economic booster effects? This means that fiscal policy cannot help all that much.
5. SOE developers expected to play a bigger role. According to the SCMP of this Tuesday, p. B2, “…state-owned developers will remain the main drivers of the mainland’s property market…accounting for about 40 per cent of sales….” This means that China’s growth has to depend very much on SOE developers selling their properties…..
iii. USA recession odds increase. We agree with the IMF (for a change), but have been positing a mild form of stagflation – sluggish growth and stickily high (supply side driven) inflation - for some years, now.
1. Worsening Economic Time®.
a. Monetary. In early March we warned, along with others, that the private sector credit crunch will exacerbate America’s intensifying “excess demand for money ”, a process which began in earnest only about a year ago when the Fed started Quantitative Tightening. This means that there is less and less spare cash around for investing.
b. Real. And we all know about last week’s disappointing data re less job openings and waning consumer confidence. This means that you do not want to be in the US stock market until we have seen another visceral round of mid-sized bank crashes and an ensuing credit crunch that will exacerbate America’s excess demand for money/excess supply of goods even more…
ENZIO VON PFEIL'S SHOW NOTES
IMF’s Copycat Global Growth Forecasts
~IMF: “I am fired”. The IMF has lost direction~
CONCLUSIONS
1. Global growth is slowing massively; witness the 75% crash in the Baltic Dry Freight Index
2. America’s mid-sized banking crises in are only beginning in earnest; expect more deposit runs
3. America’s mild stagflation is looms, thanks to an increasingly nasty credit crunch worsening her Economic Time® and supply side inflation remaining sticky
4. China’s Economic Time® may look all right, but is flimsy.
1. Lost direction. This week’s The Economist ran an acerbic piece on why the IMF has become so off-beam since it trumpeted a post COVID-19 policy response three years ago. In a nutshell, the IMF has lost sight of its original mission: “…to backstop countries in distress and thus, by extension, the world economy.”
2. Three enfeebling factors. According to The Economist, the IMF has lost out because of three enfeebling factors:
a. China’s recalcitrance when it comes to debt restructuring (aka write-downs);
b. “The parlous state of middle income countries in perennial distress…”, and
c. Mission creep. The IMF has lost sight of its original mission – to “…help solve countries’ balance of payments problems, and watch over economic stability.” Instead, other causes have crept in such as promoting gender equality
3. IMF the copycat
a. What the IMF keeps doing
i. Copying received wisdom. A very bright Chinese friend stated that “An economist tells you the time by looking at somebody else’s watch”.
ii. Thinking by committee. I would add that the IMF often errs because of its decision-by-committee process. As we recall, a camel is a horse designed by committee….
4. IMF follies. Where the IMF copycats err. What follows are my views of just how wrong the IMF economic report is..
a. Banking contagion “contained” . Forget it. In yesterday’s Financial Times (FT), pl 6, we read that “Investors are loading up on protection against a fresh round of financial turmoil in US regional bank stocks as lenders prepare to reveal how badly their earnings have been squeezed by the troubles that felled Silicon Valley Bank.”
i. Power of America’s midsized lenders (MSLs) They make about one third of all US loans – including a disproportionally large share of commercial lending.
ii. These MSLs face three issues:
1. Diminished profit outlook’
2. Deposit outflows
3. Tighter regulations
iii. The buffer that was. These MSLs used to have $5.3 trn in core deposits, backing around $4.6 trn in loans and other illiquid investments. This means that these MSLs had $700 bn in surplus cash or assets in case depositors wanted their money back. That buffer has turned into a void: regional and community lenders have $260 bn more in loans and illiquid assets than they do in deposits. Oh oh.
b. Global growth of 2.8% for 2023 and 3.0% for 2024.
i. Global trade: back to the beginning. In April 2020, the Baltic Dry Index stood at 1,560; today its stands at 1,425, or about nine per cent lower than the last low inflection point. What’s more, that Baltic Index has skidded by about 75% from its more recent peak in late September, 2021.
ii. China economy is “supercharged. Really? Then how come Beijing only recently has begun promoting private business – albeit it under state guidance - again? China’s Economic Time® may sound good: an excess supply of money and an excess demand for goods, but that robustness is nascent, as we shall see now.
1. World trade slowing. We just saw this in the Baltic Dry Index, as but one proxy. This means that that China can expect little by way of external stimuli.
2. Domestic demand has wilted. We read of Chinese officials understandably pushing the domestic demand card. If it were so robust, then why the need to push it? According to our South China Morning Post (SCMP) of yesterday, p. A3, “Consumption accounted for 32.8 per cent of China’s gross domestic product growth in 2022, down from 54.5 per cent in 2021 and still well short of over 80 per cent for many developed countries.” This means that China can expect little overall macro boost from a sector accounting for only about a third of growth.
3. Monetary policy flimsy. Seems like President Xi is cracking down big time on corruption in the banking sector, suggesting that a leash will be put on lenders. This means that we cannot expect much boost from wild lending.
4. Fiscal policy looking threadbare. We all know about the parlous state of especially local finance. Besides, how many roads and bridges can you build with any notable economic booster effects? This means that fiscal policy cannot help all that much.
5. SOE developers expected to play a bigger role. According to the SCMP of this Tuesday, p. B2, “…state-owned developers will remain the main drivers of the mainland’s property market…accounting for about 40 per cent of sales….” This means that China’s growth has to depend very much on SOE developers selling their properties…..
iii. USA recession odds increase. We agree with the IMF (for a change), but have been positing a mild form of stagflation – sluggish growth and stickily high (supply side driven) inflation - for some years, now.
1. Worsening Economic Time®.
a. Monetary. In early March we warned, along with others, that the private sector credit crunch will exacerbate America’s intensifying “excess demand for money ”, a process which began in earnest only about a year ago when the Fed started Quantitative Tightening. This means that there is less and less spare cash around for investing.
b. Real. And we all know about last week’s disappointing data re less job openings and waning consumer confidence. This means that you do not want to be in the US stock market until we have seen another visceral round of mid-sized bank crashes and an ensuing credit crunch that will exacerbate America’s excess demand for money/excess supply of goods even more…
~~END~~